Executive Summary

Record Q3 results with Total Investment Income (TII) of $138.1M (+10.3% YoY), Net Investment Income (NII) of $88.6M ($0.49/share), and record fundings of $504.6M; core yield held at 12.5% within the 12.0–12.5% target range .
Modest beats vs S&P Global consensus: Revenue $138.1M vs $136.9M*, EPS $0.49 vs $0.484*; coverage of the $0.40 base dividend was 122% with a $0.07 supplemental declared (total $0.47) (consensus: functions.GetEstimates*).
Credit quality remained solid though non‑accruals rose to two loans (1.2% of cost; 1.1% of value); first‑lien exposure stayed >90%, and floating rate mix ~98% supports asset sensitivity .
Management tone: constructive but disciplined amid “pockets of frothiness” in venture/growth lending; reiterated confidence in dividend coverage even in a rate‑cut environment .
Initial market reaction was muted to slightly negative: aftermarket −0.9% to $17.73 despite beats; near‑term catalysts include strong pipeline ($425.5M signed term sheets as of Oct 28) and sustained core yield .

What Went Well and What Went Wrong

What Went Well
- Record TII ($138.1M, +10.3% YoY) and robust NII ($88.6M), with ROAE 17.4% and ROAA 8.7%; NAV/share rose 1.8% q/q to $12.05 .
- Originations/fundings momentum: $846.2M new commitments; record Q3 fundings $504.6M; YTD commitments $2.87B and YTD fundings $1.75B .
- Management: “We continue to be very well positioned for dividend coverage in a rate reduction environment… core earnings power… ample coverage… for the foreseeable future.” — CEO Scott Bluestein .
What Went Wrong
- Non‑accruals increased to two loans (1.2% of cost; 1.1% of value) from one loan in Q2 (0.2%/0.2%) .
- Higher opex: non‑interest/fee expenses rose to $26.4M (vs $21.9M in Q3’24) on higher employee comp; interest expense increased to $27.2M on higher borrowings/utilization .
- Market backdrop: management cautioned on “pockets of frothiness” in the venture/growth lending market, underscoring the need for disciplined underwriting .

Financial Results

Headline P&L vs prior periods

Metric	Q3 2024	Q2 2025	Q3 2025
Total Investment Income ($M)	125.248	137.459	138.093
Net Investment Income ($M)	83.164	88.734	88.552
NII per Share ($)	0.51	0.50	0.49
NII Margin (%) — calc.	66.4% (83.164/125.248)	64.5% (88.734/137.459)	64.1% (88.552/138.093)
GAAP Effective Yield (%)	—	13.9%	13.5%
Core Yield (%)	—	12.5%	12.5%

Q3 2025 vs Consensus (S&P Global)

Metric	Consensus	Actual	Surprise
Revenue ($M)	136.897*	138.093	+1.196 (+0.9%)*
EPS ($)	0.4836*	0.49	+0.0064 (+1.3%)*
Coverage	7 est.*	—	EPS est. count: 8*

Values with asterisk retrieved from S&P Global (functions.GetEstimates).

Revenue mix (detail)

Component ($M)	Q3 2024	Q2 2025	Q3 2025
Interest & Dividend Income (ex‑PIK)	106.344	115.936	116.682
PIK Interest Income	12.706	13.635	14.475
Fee Income	6.198	7.888	6.936
Total Investment Income	125.248	137.459	138.093

Key BDC KPIs and Balance Sheet

KPI	Q1 2025	Q2 2025	Q3 2025
New Commitments ($M)	1,019.4 (gross)	1,000.0 (gross)	846.2
Fundings ($M)	539.1 (gross)	709.1 (gross)	504.6
Early Loan Repayments ($M)	131.8	267.4	262.3
GAAP Effective Yield (%)	13.0	13.9	13.5
Core Yield (%)	12.6	12.5	12.5
First‑Lien (% of debt)	90.9%	91.0%	90.4%
Floating Rate (% of debt)	98.0%	97.8%	97.8%
Non‑accruals (% cost / value)	1.8% / 0.5%	0.2% / 0.2%	1.2% / 1.1%
GAAP Leverage	99.9%	97.4%	99.5%
Net Regulatory Leverage (non‑GAAP)	82.7%	78.7%	82.3%
NAV/Share ($)	11.55	11.84	12.05
Available Liquidity ($M)	615.6	785.6	655.0

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Core Yield Range (non‑GAAP)	Ongoing	12.0%–12.5% (Q2 commentary)	12.0%–12.5% (Q3 commentary)	Maintained
Q4 Early Prepayments	Q4 2025	—	$150M–$200M (call commentary)	New range (call)
Dividend (Base + Supplemental)	Q3 2025	$0.40 + $0.07 (Q2 declaration)	$0.40 + $0.07 (Q3 declaration)	Maintained
Dividend Coverage Commentary	Forward	N/A	“Very well positioned for dividend coverage in a rate reduction environment”	Positive tone

Note: Some “guidance” items reflect explicit call commentary; Hercules typically does not issue formal quantitative revenue/EPS guidance.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
Market underwriting discipline / frothiness	Emphasis on disciplined deployment and sector selectivity; willingness to keep leverage at lower end for optionality	CEO flagged “pockets of frothiness” and commitment to rigorous underwriting	Heightened caution, consistent discipline
Originations pipeline strength	Strong momentum; $1.02B Q1 commitments; pending term sheets rising	$846.2M Q3 commitments; $425.5M signed term sheets as of Oct 28	Sustained strong pipeline
Dividend coverage and rate sensitivity	Covered base dividend; asset‑sensitive portfolio	122% base coverage; reiterated coverage even if rates fall; 97.8% floating assets, majority fixed debt	Reinforced coverage confidence
Credit quality / non‑accruals	Q1: 2 loans NA; Q2: improved to 1 loan	Q3: back to 2 loans; 1.2% cost / 1.1% value	Slight deterioration but low levels
Portfolio focus (first‑lien)	First‑lien ~91%	First‑lien 90.4%; CEO underscored >90% positioning	Stable, conservative mix
AI/Technology momentum (portfolio)	N/A	$200M growth financing to Tipalti to drive AI upgrades and global growth	Increasing exposure to AI leaders (portfolio)

Management Commentary

“We continued our record breaking pace of new originations… putting us on track to establish new annual records for new debt and equity commitments along with gross fundings.” — Scott Bluestein, CEO/CIO .
“We continue to be very well positioned for dividend coverage in a rate reduction environment… core earnings power… ample coverage of our base distribution for the foreseeable future.” — Scott Bluestein .
“We are continuing to see pockets of frothiness across certain parts of the venture and growth stage lending markets… we know the importance of being disciplined and true to the underwriting rigor that has made Hercules Capital the market leader.” — Scott Bluestein, earnings call .

Q&A Highlights

Prepayment outlook: Management indicated Q4 prepayments expected at $150–$200M, framing near‑term tailwinds to GAAP yield while keeping core yield within 12.0–12.5% .
Portfolio mix and risk posture: Management emphasized maintaining >90% first‑lien exposure and underwriting discipline given “frothiness” in parts of the market .
Liquidity and capital access: Over $1.0B available liquidity inclusive of Adviser Funds; investment‑grade ratings support market access .
Tone vs prior quarter: Consistently constructive with increased caution on deal structures; reaffirmed dividend coverage confidence .

Estimates Context

Q3 2025 beats: Revenue $138.1M vs $136.9M consensus (+0.9%); EPS $0.49 vs $0.484 consensus (+1.3%), aided by strong originations and early repayments; consensus counts: 7 (revenue) and 8 (EPS)* (functions.GetEstimates).
Implications: Modest upward bias to forward NII possible if elevated gross originations and measured prepayments persist, though management’s disciplined pricing and selectivity may temper spread expansion .